Every Monday, around 7:20 a.m., my family goes through a mad scramble to find $ 10 in cash. My 13 year old son needs exactly $ 9.90 to buy his weekly train ticket on his way to school. Sometimes we all forget that he left home, and one of his parents has to chase him down the street in his pajamas to give him money. He loves it.
Considering that I write on credit card To earn a living, it has taken far too long to realize that there is a simple solution to our problem: to get this child plastic.
But is a credit card or debit card a better choice for such a young teenager?
It is not difficult to add children as an authorized user on a parent’s credit card, but some families prefer to open a bank account with a debit card attached so that children do not wander around with it. a high credit limit in their pockets.
When cash is no longer the best solution for the daily expenses of young teens, the decision to opt for credit or debit will involve several factors: making it easier, teaching them financial tools, protecting financial information, and build credit.
Convenience for parents and children
There is no such thing as a universal age where it suddenly becomes appropriate to get a credit or debit card for your kids. It depends on the kids – how responsible they are and how often they have to buy things when a parent isn’t around. The decision is often forced on families when it becomes inconvenient for children not to have a card.
As children become more independent, they more often have to pay for:
Clothing, sports equipment or school supplies
Meals at school or on outings with friends
Transportation to school or extracurricular activities
Emergency expenses while traveling without parents
All of these expenses can mean that large sums are at stake, whether the money comes from a stipend or part-time employment. It can become embarrassing or even dangerous for children to only deal with cash.
Credit or debit? For convenience, either is a viable replacement for cash.
Learn to use financial tools
Most financially literate adults regularly use credit cards and debit cards. At some point, we learn the difference: Debit cards spend the money we already have, while credit cards borrow money that we will have to pay back later.
Children will also need to learn this distinction. But paying with a card can make money feel very abstract – you don’t see your cash reserve dwindling like you do when using money from your wallet. Starting with a debit card and showing kids how to track the amount in the account can be a better way to teach them how to manage their money.
Credit or debit? A debit card can prepare a young person to use credit responsibly in the future.
Protect financial information
Whether it’s a credit card or a debit card, kids need to learn how to protect their new card information. This means not leaving the card where someone could steal it or copy the numbers. It also means be careful when shopping online and avoid sites that have not taken appropriate safety precautions.
But fraud can happen even if you take all the necessary precautions. And when it does, the consumer protections in place for credit cards are slightly better than those in place for debit cards. You have more time to report credit card fraud than a debit card, and your liability for fraudulent charges is more limited. Equally important: With debit card fraud, it’s your money that’s gone, at least until things are sorted out. With credit card fraud, the money at stake belongs to the card issuers and merchants.
If you are giving your child a debit card, you may want to consider a reloadable prepaid card and keep the balance relatively low. A traditional debit card linked to a bank account puts more money at risk. But the fees tend to be higher with prepaid debit cards, and they’re not as versatile as debit cards tied to bank accounts.
Credit or debit? Credit cards are better when it comes to security.
Helping young people build a credit history
Creating credit is difficult, but it is much easier for young people who have been added to a parent’s credit card account as an authorized user. However, a 13 year old does not yet need a credit history; there is no real advantage to add such a young teenager to a parent’s credit card account. You will have plenty of time to do this later.
For older teens, however, this is a good reason to choose a credit card over debit. With authorized user status, the primary account holder (usually a parent) will still be responsible for paying the credit card bill. Teens will receive their own card, linked to the parents’ account. This will help them begin to build a positive credit history and more easily get their own credit card later. But it will also give the parent a chance to monitor children’s spending and help them learn budgeting and withholding.
Credit or debit? Debit cards do not report account activity to the credit bureaus, so they will not help create credit. Only a credit card that reports to the bureaus will establish a credit history.
What’s the verdict?
I have two goals when it comes to getting a credit or debit card for my college student. First, I want to make our life easier, so we don’t have to remember that $ 10 in cash every Monday. Credit or debit would serve the purpose here.
Second, I want to teach him how to use financial tools wisely. For that, I prefer to start it with a debit card. Once he has learned how to responsibly handle money that he cannot see or touch, then we can move on to a credit card.
But what is the best option for your child? It depends on why you are getting a card for your child. If, like me, convenience is your thing, credit or debit works well. If your goals are more complicated, you’ll have to make a choice – until one day your child is ready to handle both.